IRVINE, CA-As the housing cycle continues its recovery, the multifamily sector is finding itself in competition with single-family builders for available land, says Manny Gonzalez, principal of locally based national architecture and planning firm KTGY Group Inc. In addition, Gonzalez says that REITs and national apartment developers have been driving the multifamily construction wave.
“It's no secret that the multifamily sector has been a bright star in the housing sector's recovery,” said Gonzalez in a prepared statement. “The growth of the multifamily sector has been primarily driven by the millions of people that moved into apartments as the result of foreclosures. Also, with high unemployment, young, newly formed households postponed the purchase of a home and moved into apartments.”
He added that the housing sector is seeing more local and regional developers fueling the construction of apartment communities, and his firm is redesigning several projects that were originally entitled as high-rise condos into mid-rise apartments in the more desirable markets where land is scarce. “But, at the same time, we are starting to see more for-sale builders looking at multifamily sites and beginning to compete with the rental developers for dirt once again as the housing cycle continues to play out in its usual way.”
Gonzalez also noted in the statement that with the new building codes and an increased acceptance of higher densities by city-planning offices, densities are much higher than in years past. Higher densities keep costs down—for both the renter and the builder/developer. “Renters are willing to live in a smaller unit size, if the location is right—near transportation, work, shopping and play. In high-density, cost-prohibitive markets like New York and San Francisco, 'micro units' (such as 220-square-foot apartments) are popping up, similar to those found in Japan and Europe.”
Gonzalez also noted that floor plans need to be more open and function with flexible interior components like sliding walls and room dividers in order to make smaller units work for renters. “High ceilings and floor-to-ceiling windows are used to create a feeling of spaciousness and a great connection to the outdoors.”
He added that building green is the new standard, since renters “want sustainability, but they don't want to pay extra for it. They want an overall design that is sleek and contemporary (both the interior and exterior).”
Common areas and amenities are especially important to these renters. Even though they have smaller apartments, “renters still want to be able to entertain and socialize, so outdoor community lounge areas, outdoor kitchens, fire pits and fireplaces are popular,” Gonzalez said. “A membership-quality fitness center and a studio for yoga and/or Pilates is key.”
Demand for for-sale homes will continue to increase as buyer confidence increases and interest rates remain low, Gonzalez pointed out. “Projects that were originally entitled as apartments are being converted to condos to address the shortage of available single-family dwellings.”
With land being so scarce, another trend is converting parking lots into housing, and creating mixed-use residential with subterranean parking is also popular. “Transforming an office or industrial building into housing in downtown or emerging neighborhoods is providing Gen-Yers with a unique living experience near where they work and play,” Gonzalez said.
In addition, Gonzalez explained that in the previous housing cycle, recovery began with apartments, then for-sale properties to appoint where condos were in such high demand that developers bought apartment communities and converted them into condos. “The exit strategy for the apartment owners worked out well because the majority of units were two and three bedrooms, which could easily be converted to condos with an upgraded finish spec. I am not so sure it will work as well this time around because the unit mix is weighted more heavily on the one-bedroom side and the unit sizes are shrinking. You can certainly find a renter for a 300-square-foot micro unit because they can walk away anytime they want; but will developers be able to find a buyer for a 300-square-foot condo? And, as the job market continues to improve and Gen Y matures and forms families, the apartment owners are going to have to find a way to fill those units with someone.”
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
